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Petrol prices set to soar

A combination of the falling Australian dollar and rising oil prices could see Australian motorists paying up to $1.70 a litre in the coming months – and that’s just normal unleaded fuel.

The Australian dollar in hitting 90 US cents, and further falls are possible, meaning oil and petroleum, which is priced in US dollars becomes more expensive. The dollar’s fall from $1.05 down to around 90 cents in the past couple of months has already added at least 11 cents to the price of a litre of petrol, according to news.com.au.

Australia imports most of our oil, so we can expect to pay more for our petrol as the Australian dollar slides.

The price of oil is also shooting higher, on concerns about political instability in Egypt. While Egypt is not a major oil exporter, it does control the Suez Canal, through which around 2 million barrels of oil are transported daily, and is thus a crucial supply route.

Unleaded petrol prices are already above $1.50 in most regions and states across Australia, with some regions in Western Australia seeing prices over $1.60 a litre. Some Northern Territory motorists are already facing paying more than $1.70 a litre, according to motormouth.com.au. And if your car requires premium unleaded fuel, many New South Wales suburban drivers are paying $1.70 for the privilege already.

Coles Express, owned by Wesfarmers Limited (ASX:WES), petrol stations close to the Sydney CBD are charging a whopping 177.9 cents per litre for premium unleaded. That could mean prices of over $2.00 per litre for some motorists in the near future, if the dollar keeps falling.

Victorian drivers appear to be faring a little better, with Caltex Australia (ASX:CTX) service stations in Melbourne charging around 150.9 cents a litre for premium unleaded, while Woolworths Limited (ASX:WOW) branded service stations in Perth are advertising prices of around 162.9 cents a litre.

Foolish takeaway

Economists are concerned that high petrol prices will add to inflation, but also lead to households cutting back on their discretionary spending. That’s bad news for the retail sector and retailers like Harvey Norman Holdings (ASX:HVN), which are already struggling in a weak economic environment.

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Motley Fool writer/analyst Mike King owns shares in Woolworths.

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